UT/2024/000060 - [2025] UKUT 00143 (TCC)

This ground relates to the correct interpretation of the first example (Example One) given under paragraph 10 of the SP (see above at [26]) that:

“• at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief.”

Under this ground, the Claimant submits that HMRC misinterpreted the reference to a company being “unaware of profits against which the company could claim relief”. A company was unaware of such profits in circumstances where it considered that a sum was not a profit that was required to be brought into the charge to tax. It was thus a conjunctive requirement: the company had to be both aware of the profits (which it was – there is no dispute it was aware of the Irish subsidiary’s dividends) but also that those profits were chargeable to tax. It was only if profits were chargeable to tax that relief from tax such as NTLRD or loss relief could be set off against such profits. That was true, the Claimant argues, even if the company was not certain about such chargeability under law because of ongoing litigation or was aware HMRC might disagree. HMRC’s view that the Claimant was aware that there “could have been profits against which [the Claimant] could claim relief” given the Claimant’s doubts as to the treatment of overseas dividends thus misinterpreted the unawareness requirement.

HMRC submit that there was no misinterpretation, as paragraph 10 of the SP addresses the factual awareness of profits being in existence rather than the “conviction” of the taxpayer in the legal treatment of profits. HMRC argue the SP is only assessing the first step of taking the amount of company’s profits for the period on which corporation tax is chargeable (rather than the second step of giving reliefs or set-offs available, for example double tax relief).

HMRC also submit that the Claimant’s alleged unawareness in the present case was merely ignorance of the law and say [40] of Post-Prudential [2025] EWCA Civ 166 (“2025 Post-Prudential CA”) supports this (that case was issued after the hearing but both parties were able to and did provide written submissions on the case). Falk LJ’s judgment (whose judgment the other LLJs agreed) explained:

“The starting point is that the decisions of the CJEU in the FII litigation were in their nature retrospective in effect, in the sense that they declared what the law had been at all relevant times. That accords with the normal declaratory theory of judicial decision-making. Indeed, in FII CJEU1 the CJEU expressly rejected the imposition of any temporal limitation (a limitation which of course would not have been in the interests of the taxpayer Claimants). It is true that there was a period of considerable uncertainty, at least until the availability of an FNR credit was established in FII CJEU2, but that was a function of the developing CJEU jurisprudence rather than any aspect of national procedural law.”